Table of Contents

Leaps Trader Commentary

Logic Does Not Apply To Energy

by Jim Brown

I hate to seem like a broken record but the insane movement in the price of
oil given an off the chart gain in inventory shows there is no logic at work in
the oil sector. On Wednesday the EIA showed a gain of 7.3 million barrels of oil
for the week. This was the largest inventory build since the week of Dec-14th
and should have been bearish for prices. Instead prices rebounded from the
Tuesday low of $99.55 to close at $106.16 for the week. Nearly a $7 gain on a 7
million barrel build.

Some analysts blamed it on gasoline, which has seen three consecutive weeks of
losses totaling 11.2 million barrels. Gasoline inventories are falling so oil
has to move higher or so the sentiment goes. Why? Gasoline levels were at
15-year highs. They needed to decline. Oil inventories are rising because
refiners are putting capacity on hold rather than refine gasoline at a loss.
Capacity for last week was 82.45 rather than the 90-95% we normally see. The
shift in inventories for gas/oil
was normal and reasonable. The gain in price
was not. The falling dollar also got the blame as did temporary refinery outages
on the West Coast.

Weekly Inventory Table

Further evidence of an impending oil glut came from the Persian Gulf. Oil from
the various OPEC countries in the Persian Gulf comes to the U.S. on Very Large
Crude Carriers (VLCC) tankers. These lease by the day and are normally in very
short supply when oil is tight. Over just the last week the daily rental rate on
a VLCC fell from $56,000 to $35,000. This indicates a sudden decrease in the
number of bookings and by inference to a slowdown of shipments to the U.S.
shores. Wednesday's
EIA report showed the lowest import rate since Jan-2007. All
of these facts support the case for lower oil prices at least in the short-term.
Nobody is listening.

Last week I reported that 61-year Aloha Airlines went out of business. On
Thursday ATA filed for bankruptcy, laid off all 2200 employees and ceased
operations. On Saturday budget airline Skybus ceased operations and said it
would file bankruptcy next week. The problem was high oil prices, tough
competition and the inability to raise ticket prices to cover rising costs.
Northwest said they were embarking on an immediate cost cutting program to
combat the tough times facing the airline
industry. On Saturday American
Airlines said it was imposing a hiring freeze in an attempt to further cut
costs. American spent $9.3 billion in fuel in 2007, more than triple the amount
they spent in 2000. This story is far from over and not everyone believed me
last week. I wrote about the tough times ahead for the airlines before all this
news broke. Now there are three less carriers and that will help ticket prices
but only slightly. There needs to be a lot more pain before those
remaining will
begin hiking prices enough to save themselves from the same fate.

India announced to the world this weekend that they are going to be a force to
be reckoned with as a global competitor in exploration and development of the
world's remaining reserves. India said it will spend $300 billion over the next
5-7 years on exploration and production. India is Asia's third biggest oil
consumer with a population of more than one billion. Spending more than $45
billion a year would put them well ahead of Exxon's $25 billion budget. They
said they would be investing
$450 million in exploration in Venezuela and will
sign an agreement with PDVSA next week. They will be exploring in the San
Cristobal area. The sudden emergence of India from relative obscurity in the
energy sector suggests they will be going head to head with China on the global
exploration stage.

We had a great week in the portfolio and that means several positions are due
for some profit taking. I cut the top picks list to only four and a couple of
those need to pull back to get an entry.

Jim Brown

May Crude Futures Chart - Daily

May Natural Gas Futures Chart - Daily

April Gasoline Futures Chart - RBOB Daily

Changes in Portfolio

New Energy Plays

None

New Non-Energy Plays

None

Dropped Plays

None

New Watch List Plays Triggered

None

Portfolio Listing & Top Picks

***********
Top Picks
***********

If you are looking to add another position this are my top picks for this week.
The target prices listed would be the ideal entry points for these stocks today.
There is no assurance any stock will ever return to these support levels and you
will need to make your own decision about an entry point above these levels. I
believe these stocks have the best potential this week. The list will change
from week to week based on technicals, fundamentals, crude prices and market
action. The
list is not sorted in any particular order.

****************

After strong gains across the board I am only including 4 stocks in the top
picks this week. My Interquote is down so no graphic this week.

SunPower continues to rock with news items almost daily about new projects in
the solar sector. Definitely no complaints here.

Southern California Edison announced a 250-megawatt solar project in California
that will consist of two square miles of solar panels. That turned up the heat
on the solar stocks and the race was on. That single project is more than the
entire U.S. production of solar cells in 2006.

No specific news on Cypress other than an earnings date of Apr-17th. Cypress is
spiking on the gains in SunPower where they are a major stockholder.

Breakout trigger: $21.50 (hit 3/24)

Position 2010 $25 LEAP Call WSY-AE @ $4.90

******************

TOL $24.46 +2.01 - Toll Brothers *** Stop Loss $21.50 ***

Toll is holding right at resistance but showing no indications of a failure.
Odds are good we are either going to see a sell the news/rally event this week
or a breakout. It is a coin flip from my view.

Breakout trigger: $25

Position: 2010 $30 LEAP Call YKW-AF @ $5.40

********************

C $24.08 +3.25 - Citigroup *** Stop Loss $20.00 **

Citi is holding its gains for the week but showing no indications it is going
higher. For short-term traders the rebound from the March lows provides a
perfect exit point. For bears they may not be so eager to jump back in just yet.

Leaps Trader Watch List

None - I am cautiously pessimistic for next week. I do believe
oil could weaken and the broader market did not handle the jobs numbers well.

Current Watch List

PBR - Petrobras

This company has everything going for it and there is no reason for this decline
other than sector rotation. If we see $90 on a dip we need to be buyers.

Company Info:

Petroleo Brasileiro SA - Petrobras (Petrobras) is a Brazil-based holding company
engaged in the exploration, production, refinement and distribution of oil and
gas. The Company is involved in four business areas: Exploration and Production,
Downstream, Gas & Energy and International. Petrobras has 109 production
platforms and 15 refineries. It operates 31,089 kilometers of pipelines. The
Company has various subsidiaries: Petrobras Quimica SA - Petroquisa, which is
engaged in the
production, commercialization, distribution, import and export of
chemical products; Petrobras Distribuidora SA - BR, which is involved in the
distribution and commercialization of oil products and natural gas, and
Petrobras Netherlands BV - PNBV, which is active in the purchase, sale and rent
of equipment and platforms for the production of oil and gas. Petrobras operates
in Brazil, Argentina, Mexico, Portugal, the United States, Peru and Turkey,
among others.

The USO fell -$8 last week to trade under $80. If we really get some margin
selling in the commodities and especially oil it is possible but not probable we
could see $72. If by some freak combination of circumstances we do tag that
level we want to be long.

Breakdown trigger: $72

Buy 2009 $75 LEAP Call OLL-AW
Sell 2009 $95 LEAP Call OLL-AQ

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